High Speed Rail Affirmative
Infrastructure Spending Good-AT: Crowd Out
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- Infrastructure Spending Good-Multiplier Effect
Infrastructure Spending Good-AT: Crowd Outgovernment investment in infrastructure actually increases the size of the economy, allowing for increased growth in both the public and private sectors.Han ’12 (Xue, February, Global Infrastructure Asset Management LLC, “Why Invest in Infrastructure?”, Han holds a Bachelor’s degree in Mathematics and Economics from Beloit College.) In order to see this fact, let‘s start with probably the single most common and influential argument against increasing the level of public investment, that is it will ―crowd out‖ private investment – i.e. an increase in public infrastructure spending will be associated with an equivalent decline in private investment. To test the validity of this argument, let‘s first understand the two kinds of resources required by investments in infrastructure: real economic resources – materials, equipment and people‘s labor, and financial resources – money coming either from tax revenues or government borrowing. The ‗crowding out‘ argument assumes that when the public sector consumes more of 16 these real and financial resources, it necessarily diminishes the amount available to the private sector. Therefore, an increase in public capital expenditures results in less private sector production. In other words, the ‗economic pie‘ is fixed. When the government takes a bigger slice, it leaves less for the private economy. However, even at the level of simple logic, the crowding out argument only holds under a specific set of narrow economic circumstances. These circumstances would be when: 1) all the economy‘s real resources are being fully utilized, i.e. workers are fully employed, and the existing productive apparatus is being run full-tilt; 2) the economy‘s financial resources are similarly already being fully used up in financing productive investment projects; and 3) new public investment spending makes no contribution toward expanding the economy‘s productive capacity—i.e. it is not succeeding in its purpose of increasing the overall size of the economic pie. In the current economic crisis, unemployment is rising toward its highest level in a generation and financial institutions are providing almost no loans for private investment, preferring instead to hoard huge cash reserves and to purchase U.S. Treasury bonds, the single safest asset available on financial markets. Under these circumstances, there is no possibility of public investment projects bidding resources away from the private sector. Rather, higher rates of public infrastructure will increase the total number of people who can find employment, and it will put to good use the financial resources flowing into the U.S. Treasury. But these are of course extraordinary circumstances. It is also important to recognize that crowding out need not occur even when the economy is booming and unemployment is low. This is because public infrastructure investments will expand the economy‘s long-term productive capacity, with benefits flowing primarily to the private sector. Because public infrastructure investment actually increases the overall size of the economic pie, both the public and the private sectors can expand together through a complimentary, mutually-supportive growth path. More specifically, public spending provides goods and services essential for private production, including roads, bridges, energy, water, aviation, and water transport. Infrastructure improvements can increase labor productivity—e.g. more efficient transportation systems to and from work reduce wasted time. Infrastructure Spending Good-Multiplier EffectInfrastructure investments make the economy stronger through the multiplier effect.Han ’12 (Xue, February, Global Infrastructure Asset Management LLC, “Why Invest in Infrastructure?”, Han holds a Bachelor’s degree in Mathematics and Economics from Beloit College.) Multiplier Effects on the Economy Besides its improving effects on productive capacity as the major reason for the infrastructure investment‘s contribution to the economic growth, a second reason is its relatively larger multiplier effects on the overall economy compared to other types of investment of the same amount. The multiplier effect refers to the dollar amount impact on the economy, measured as GDP, that each dollar of spending could generate; since the effect of each dollar of spending is usually beyond itself – i.e. larger than 1 – due to its stimulating effects on other components of the GDP, such as consumption, investment and net exports, it is often referred to as the multiplier effects. There is more than one kind of multiplier effect based on different investments, but in most studies and ours as well, we are specifically interested in and refer to the fiscal multiplier, that is the dollar amount impact on the economy for each dollar of government spending. As discussed in details in a previous research of mine on the subject of the Automatic Budget Enforcement Procedures, the size of the multiplier under current circumstances is estimated to be 1.88, with the interest rate at the zero lower bound taken into account in illustrations of a series of Keynesian models. With regards to the fact that multiplier specifically for infrastructure investments is larger than other types of investments and thus the general average fiscal multiplier, the theoretical reasons behind are quite easy to understand. The two major reasons infrastructure spending are: (1) less leakage to imports and (2) stronger stimulus in consumption compared to other types of spending such as tax cuts, where a higher proportion of the additional money is saved or spent on imported goods and services. In order to estimate the size of multiplier specifically for infrastructure investments, we utilize the employment effects estimated using the Input-Output Model in the research How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth (Heintz, Pollin and Peltier, 2009). According to their research, for each $1 billion infrastructure investment made, an average of 18,681 jobs will be created in core economic infrastructure through direct, indirect and induced effects. As of December 2010, the total employment in the U.S. was 130.26 million, which translates an increase of 18,681 jobs into a percentage increase of 0.0143%. From there, based on the solid basic assumption on the relationship between employment and GDP increases that was used by Romer and Bernstein in their paper The Job Impact of the American Recovery and Reinvestment Act (Romer and Bernstein, 2009), we can trace back to a reliable estimate of GDP increase in dollar amount for each $1 billion investments in infrastructure, and thus an infrastructure multiplier. The assumption made by Romer and Bernstein and also agreed by Heintz, Pollin and Peltier is that employment will rise by 0.75% for every 1% increase in GDP. Therefore, the 0.0143% increase in employment generated per $1 billion infrastructure investment can be translated as a 0.0191% increase in GDP. With a GDP of $14,660.2 billion in 2010, such percentage increase is equivalent to a dollar amount increase of 19 $2.8 billion in GDP. That said, the conclusion is that, for each $1 billion spending on infrastructure, an increase of approximately $2.8 billion in GDP can be observed, meaning that the multiplier for infrastructure investments specifically is about 2.8, much larger than the average size of 1.88 for all types of investments as estimated in previous study. This well established larger multiplier effects of infrastructure investments become particularly important due to the slow economic recovery we have faced since the crisis. Even without the more influential and fundamental effects of infrastructure investments on productivity improvement, the larger multiplier such investments have is a strong enough reason to call for more spending, or at least less cuts, on infrastructure projects. Directory: files files -> Answer True False 2 points Question 2 files -> Integer programming and game theory files -> 4 Integer Programming files -> Bpa vehicle Window Repair Scenario #1 task: Procure vehicle window relacement. Objective files -> Pop Warner History files -> North Carolina Inclusion Initiative Mapping Where Children with ieps are Being Served Purpose files -> Fall 2013 Spring 2014 Program Data: Standard 1 Exhibit 4d files -> Hanban – asia society confucius classrooms network 2010 request for proposal files -> Northern England’s set-jetting locations Download 0.58 Mb. Share with your friends:
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